Mr. Scott Thomson reports

SCOTIABANK REPORTS FIRST QUARTER RESULTS

Bank of Nova Scotia had first quarter net income of $2,199-million, compared with $1,758-million in the same period last year. Diluted earnings per share (EPS) were $1.68, compared to $1.35 in the same period a year ago.

Adjusted net income for the first quarter was $2,212 million and diluted EPS was $1.69, down from $1.84 last year. Adjusted return on equity was 11.9 per cent compared to 13.4 per cent a year ago.

"The Bank delivered solid earnings this quarter driven by strong revenue growth, margin expansion and expense discipline. I am encouraged by the early progress against our strategic priorities, and the further strengthening of our balance sheet metrics," said Scott Thomson, President and CEO of Scotiabank.

Canadian Banking delivered adjusted earnings of $1,096 million this quarter as solid revenue growth from margin expansion, continued deposit growth and expense management were partly offset by higher provision for credit losses.

International Banking generated adjusted earnings of $774 million. The 32 per cent quarter-over-quarter earnings growth was driven by double-digit revenue growth, partly offset by higher provision for credit losses and expenses.

Global Wealth Management adjusted earnings were $377 million. Higher mutual fund fees and lower expenses contributed to 13 per cent earnings growth compared to the prior quarter.

Global Banking and Markets reported earnings of $439 million, up 6 per cent compared to the prior quarter. Results were supported by lower provision for credit losses and revenue growth, partly offset by higher expenses.

The Bank reported an increased Common Equity Tier 1 (CET1) capital ratio(3) of 12.9 per cent, up from 11.5 per cent last year.

"We are making positive progress towards our goal of delivering sustainable, long-term value for our shareholders. With the release of our new strategy at our Investor Day in December, our team of Scotiabankers globally are energized and focused on executing our strategic priorities," continued Mr. Thomson.

Adoption of IFRS 17

On November 1, 2023, the Bank adopted IFRS 17 Insurance Contracts, which provides a comprehensive principle-based framework for the recognition, measurement, presentation, and disclosure of insurance contracts and replaces IFRS 4, the previous accounting standard for insurance contracts. The Bank adopted IFRS 17 on a retrospective basis, restating the results from the transition date of November 1, 2022. Accordingly, results for fiscal 2023 have been restated to reflect the IFRS 17 basis of accounting for insurance contracts. Refer to Notes 3 and 4 of the condensed interim financial statements in the Bank's Q1 2024 Quarterly Report to Shareholders for details.

Business Segment Review

Canadian Banking

Q1 2024 vs Q1 2023

Net income attributable to equity holders was $1,095 million, compared to $1,086 million. Adjusted net income attributable to equity holders was $1,096 million, an increase of $9 million or 1 per cent. The increase was due primarily to higher revenue, mostly offset by higher provision for credit losses and non-interest expenses.

Q1 2024 vs Q4 2023

Net income attributable to equity holders increased $302 million or 38 per cent. The increase was due primarily to lower provision for credit losses, higher revenue, and lower non-interest expenses.

International Banking

Q1 2024 vs Q1 2023

Net income attributable to equity holders increased $102 million to $746 million. Adjusted net income attributable to equity holders increased $101 million to $752 million. The increase was driven by higher net interest income, non-interest income and the positive impact of foreign currency translation, partly offset by higher provision for credit losses, non-interest expenses and income taxes.

Q1 2024 vs Q4 2023

Net income attributable to equity holders increased by $198 million or 36 per cent. Adjusted net income attributable to equity holders increased by $196 million or 35 per cent. The increase was due primarily to higher non-interest income and net interest income, partly offset by higher provision for credit losses, non-interest expenses and income taxes.

Financial Performance on a Constant Dollar Basis

The discussion below on the results of operations is on a constant dollar basis. Under the constant dollar basis, prior period amounts are recalculated using current period average foreign currency rates, which is a non-GAAP financial measure (refer to Non-GAAP Measures starting on page 5). The Bank believes that constant dollar is useful for readers in assessing ongoing business performance without the impact of foreign currency translation and is used by management to assess the performance of the business segment.

Q1 2024 vs Q1 2023

Net income attributable to equity holders was $746 million, compared to $711 million. Adjusted net income attributable to equity holders was $752 million, up $34 million or 5 per cent. The increase was driven by higher net interest income, partly offset by lower non-interest income and higher provision for credit losses, non-interest expenses and income taxes.

Q1 2024 vs Q4 2023

Net income attributable to equity holders increased by $196 million or 36 per cent. Adjusted net income attributable to equity holders increased by $196 million or 35 per cent. The increase was due primarily to higher non-interest income and net interest income, partly offset by higher provision for credit losses, non-interest expenses and income taxes.

Global Wealth Management

Q1 2024 vs Q1 2023

Net income attributable to equity holders was $368 million, down $17 million or 4 per cent. Adjusted net income attributable to equity holders was $374 million, down $18 million or 4 per cent. The decline was due primarily to higher non-interest expenses, partly offset by higher mutual fund fees across the international businesses and higher brokerage revenues in Canada.

Q1 2024 vs Q4 2023

Net income attributable to equity holders increased $41 million or 13 per cent. Adjusted net income attributable to equity holders increased $41 million or 12 per cent, due primarily to higher mutual fund fees, brokerage revenues, and net interest income, as well as lower non-interest expenses.

Global Banking and Markets

Q1 2024 vs Q1 2023

Net income attributable to equity holders was $439 million, a decrease of $80 million or 15 per cent. This decline was due to lower net interest income, lower non-interest income, and higher non-interest expenses, partly offset by lower provision for credit losses.

Q1 2024 vs Q4 2023

Net income attributable to equity holders increased by $25 million or 6 per cent due to lower provision for credit losses and higher non-interest income, partly offset by lower net interest income and higher non-interest expenses.

Other

Q1 2024 vs Q1 2023

Net income attributable to equity holders was a net loss of $474 million, compared to a net loss of $913 million in the prior year. Adjusted net income attributable to equity holders was a net loss of $474 million compared to a net loss of $334 million in the prior year. The higher loss of $140 million was due mainly to lower revenue from higher funding costs, partly offset by higher income from liquid assets and lower taxable equivalent basis (TEB) gross-up which is offset in income taxes.

Q1 2024 vs Q4 2023

Net income attributable to equity holders increased $285 million from the prior quarter. On an adjusted basis, net income attributable to equity holders increased $13 million due mainly to lower expenses and higher revenues, partly offset by higher income taxes. The higher revenue is due primarily to lower TEB gross-up which is offset in income taxes.

Credit risk

Provision for credit losses

Q1 2024 vs Q1 2023

The provision for credit losses was $962 million, compared to $638 million, an increase of $324 million. The provision for credit losses ratio increased 17 basis points to 50 basis points.

The provision for credit losses on performing loans was $20 million, compared to $76 million. The provision this quarter was driven by retail portfolio growth and the impact of the continued unfavourable macroeconomic outlook, mainly on the commercial, corporate and Canadian retail portfolios. This was mostly offset by retail credit migration to impaired.

The provision for credit losses on impaired loans was $942 million, compared to $562 million, an increase of $380 million due primarily to higher formations and delinquency trends in International Banking retail portfolios, mostly in Colombia, Chile and Peru, as a result of inflation and interest rate levels in these markets in the prior year, and higher provisions relating to Canadian Banking retail portfolios, mostly in auto loans and unsecured lines. The provision for credit losses ratio on impaired loans was 49 basis points, an increase of 20 basis points.

Q1 2024 vs Q4 2023

The provision for credit losses was $962 million, compared to $1,256 million, a decrease of $294 million or 23 per cent. The provision for credit losses ratio decreased 15 basis points to 50 basis points.

The provision for credit losses on performing loans was $20 million, compared to $454 million. The provision this quarter was driven by retail portfolio growth and the impact of the continued unfavourable macroeconomic outlook, mainly on the commercial, corporate and Canadian retail portfolios. This was mostly offset by retail credit migration to impaired.

Higher provisions on performing loans last quarter were mostly in Canadian Banking due mainly to the unfavourable macroeconomic outlook and continued uncertainty around the impact of higher interest rates, including the related impacts of migration in the retail portfolios, and on certain sectors in the non-retail portfolios.

The provision for credit losses on impaired loans was $942 million, compared to $802 million, an increase of $140 million or 17 per cent due primarily to higher provisions relating to Canadian retail portfolios mostly in auto loans and unsecured lines, and higher formations and delinquency trends in International Banking retail portfolios, mostly in Colombia, Peru and Chile, as a result of the impact of higher inflation and interest rate levels in these markets in the prior year. The provision for credit losses ratio on impaired loans was 49 basis points, an increase of seven basis points.

Allowance for credit losses

The total allowance for credit losses as at January 31, 2024, was $6,597 million compared to $6,629 million last quarter. The allowance for credit losses ratio was 86 basis points, an increase of one basis point. The allowance for credit losses on loans was $6,328 million, down $44 million from the prior quarter. The impact of foreign currency translation decreased the allowance by $85 million. This was mainly offset by higher formations in the International Banking retail and Canadian commercial portfolios, as well as the unfavourable macroeconomic outlook primarily impacting the commercial, corporate and Canadian retail portfolios.

The allowance against performing loans was lower at $4,424 million compared to $4,491 million as at October 31, 2023. The allowance for performing loans ratio was 61 basis points. The decrease was due primarily to the impact of foreign currency translation, partly offset by the impact of the unfavourable macroeconomic outlook mainly in the commercial, corporate and Canadian retail portfolios, as well as retail portfolio growth.

The allowance on impaired loans increased to $1,904 million from $1,881 million last quarter. The allowance for impaired loans ratio was 25 basis points, an increase of one basis point. The increase was due primarily to higher retail formations in International Banking across markets, and in the Canadian commercial portfolio due mainly to one account in the transportation sector, partly offset by the impact of foreign currency translation.

Impaired loans

Gross impaired loans increased to $6,119 million as at January 31, 2024, from $5,726 million last quarter. The increase was due primarily to new commercial formations in Canadian Banking mainly related to one account in the transportation sector, and higher retail formations in International Banking mainly in Chile, Mexico and Peru. This was partly offset by the impact of foreign exchange translation. The gross impaired loan ratio was 80 basis points, an increase of six basis points from last quarter.

Net impaired loans in Canadian Banking were $1,217 million, an increase of $268 million from last quarter, mainly related to one commercial account in the transportation sector. International Banking's net impaired loans were $2,923 million, an increase of $130 million from last quarter, due primarily to higher net formations in the retail portfolio, mainly in Chile, Mexico and Peru, partly offset by the impact of foreign exchange translation. In Global Banking and Markets, net impaired loans were $40 million, a decrease of $41 million from last quarter, due primarily to repayments related to one account in the real estate sector. In Global Wealth Management, net impaired loans were $35 million, an increase of $13 million from last quarter. Net impaired loans as a percentage of loans and acceptances were 0.55 per cent, an increase of five basis points from 0.50 per cent last quarter. Capital Ratios

The Bank's Common Equity Tier 1 (CET1) capital ratio was 12.9 per cent as at January 31, 2024, a decrease of approximately 10 basis points from the prior quarter. The CET1 ratio benefited 45 basis points from earnings, share issuances from the Bank's Shareholder Dividend and Share Purchase Plan, and revaluation gains on FVOCI securities, offset by higher RWA. The RWA increase was primarily driven by the adoption impacts of the revised Basel III FRTB market and CVA capital requirements and the 2.5 per cent phase-in increase in the standardized capital floor of approximately 70 basis points, net of actions taken by the businesses to reduce the impact to 48 bps.

The Bank's Tier 1 capital ratio was 14.8 per cent as at January 31, 2024, unchanged from the prior quarter, as the above noted impacts to the CET1 ratio and a redemption of $300 million of NVCC preferred shares were offset by a USD $750 million issuance of Limited Recourse Capital Notes (NVCC).

The Bank's Total capital ratio was 16.7 per cent as at January 31, 2024, a decrease of approximately 50 basis points from the prior quarter, due mainly to the above noted impacts to the Tier 1 capital ratio and a redemption of $1.75 billion of NVCC subordinated debentures.

The Leverage ratio(2) was 4.3 per cent as at January 31, 2024, an increase of approximately 10 basis points from the prior quarter, due primarily to higher Tier 1 capital.

The Total loss absorbing capacity (TLAC) ratio(3) was 28.9 per cent as at January 31, 2024, a decrease of approximately 170 basis points from the prior quarter, mainly from lower available TLAC and higher risk-weighted assets.

The TLAC Leverage ratio(3) was 8.4 per cent, a decrease of approximately 20 basis points, due primarily to lower available TLAC.

As at January 31, 2024, the CET1, Tier 1, Total capital, Leverage, TLAC and TLAC Leverage ratios were well above OSFI's minimum capital ratios.

Dividend and Share Purchase Plan

Scotiabank's Shareholder Dividend and Share Purchase Plan allows common and preferred shareholders to purchase additional common shares by reinvesting their cash dividend without incurring brokerage or administrative fees. As well, eligible shareholders may invest up to $20,000 each fiscal year to purchase additional common shares of the Bank. All administrative costs of the plan are paid by the Bank. For more information on participation in the plan, please contact the transfer agent.

Conference Call and Web Broadcast

The quarterly results conference call will take place on February 27, 2024, at 7:15 am ET and is expected to last approximately one hour. Interested parties are invited to access the call live, in listen-only mode, by telephone at 416-641-6104, or toll-free at 1-800-952-5114 using ID 6210869# (please call shortly before 7:15 am ET). In addition, an audio webcast, with accompanying slide presentation, may be accessed via the Investor Relations page at www.scotiabank.com/investorrelations.

Following discussion of the results by Scotiabank executives, there will be a question and answer session. A telephone replay of the conference call will be available from February 27, 2024, to March 27, 2024, by calling 905-694-9451 or 1-800-408-3053 (North America toll-free) and entering the access code 5144598#.

We seek Safe Harbor.